The anti-corruption crusade by the Modi government (in the realty sector) essentially began with the passage of the Real Estate Regulation and Development Bill early this year. It was a landmark development that kick-started the process of making rules and putting in place the institutional infrastructure so as to protect the interests of the Indian home buyers.
And the recent demonetization drive by the government is hailed as another remarkable step to curb corruption within the sector, where ‘cash’ forms a major component of all transactions.
So, what next?
Well, the Prime Minister is very much vocal about his next move. It’s the Benami Properties that are on his radar in the next round of ‘cleaning.’ To define it, ‘Benami’ in Persian means ‘no name’ or without name.’
The New Benami Act
The preliminary step has already been taken. The original Benami Transactions Act 1988 has been amended to make the existing law more stringent.
- Under the new Benami Transactions (Prohibition) Amendment Act 2016 that recently came into force on November 1, a transaction is named ‘benami’ if the property is held by one person, but has been provided or paid for by another person.
- The Act prohibits recovery of the property held benami from benamidar by the real owner. Also, Benami properties are liable for confiscation by the government without any compensation.
- The Act provides imprisonment up to seven years and fine for any violations.
- The new law also provides for an appellate mechanism in the form of an adjudicating authority and appellate tribunal. For the purpose, the adjudicating authority referred to in section 6(1) and appellate tribunal referred to in section 25 of the Prevention of Money Laundering Act, 2002 (PMLA), have been assigned the task under PBPT Act as well.
- Under the Act, in each of the principal CCIT regions, a joint/additional commissioner of income-tax, an assistant / deputy commissioner of income-tax and a tax recovery official have been notified to perform the functions and exercise the powers of the approving authority, initiating official and administrator, respectively.
Step in the right direction!
Since time immemorial, real estate is considered an un-organised sector with major transactions happening in ‘real cash.’ In fact, property has always been the last bastion of black money. But, with the new Act in place and a warning by the Modi government to crackdown benami holders, it is just the beginning of the ‘Acche Din’ as promised
So, let’s look at some of the benefits that this move may have on the realty sector at large.
- Ample land for affordable homes : With the government cracking down on benami transactions, it is anticipated that several land parcels will come into the kitty of the central government, ultimately aiding them to use it in fast-tracking their ‘Housing For All by 2022’ vision. More and more land parcels can be opened up for building affordable housing for the poor.
- Attract Foreign Investors : The realty sector, often labelled as one of the most corrupt ones, will become more professional and transparent. Not just that, with its image makeover, the sector will attract more foreign investors who have been eyeing the Indian market. This in turn will benefit the sector in the long run.
- Property Prices could be Impacted : The benami transaction Act coupled with the demonetization drive may also have a significant impact on the property prices in the near future. Since benami properties was one of the easiest way to get rid of one’s unaccounted wealth, the move will now halt this evil practise by many. Thus, it will keep a check on the property prices without making it very speculative.
- Clear land titles : One of the major positives of this move will be that most land dealings will begin to have clear titles. This will also pave way for developers to carry out more joint developments with less litigation. Moreover, in cities like Delhi-NCR where land forms the major expense of developers, it will be interesting to see how they will now transform and opt more for JDs which will ultimately be less expensive
- Lending Institutions to be more confident : With increased transparency, the lending institutions will also become more confident and possibly reduce the lending rates. This in a way will help to bring down prices and make properties more affordable.
Hence, it will be interesting to see how things unfold in the near future, particularly concerning the benami properties. The government has certainly got the ball rolling and is all geared up to crack the whip on the defaulters.